Dish-ESPN Trial Offers a Rare Inside Look at TV Dealmaking
Layoffs Hit ESPN Amid Record Revenue
In September, the licensing deal between ESPN and Dish Network is set to expire. The last time the two parties reached a carriage agreement was in 2005 when an eight-year deal was struck. That negotiation took more than a year to complete, and now with about seven months left before a new deal is needed, the two sides are arguing with each other in a New York courtroom over whether ESPN breached the terms of its 2005 deal.
If ESPN and Dish fail to reach a new agreement by about September 20, Dish will no longer be able to carry on its system ESPN, ESPN2, ESPN News, ESPNU, ESPN Deportes and ESPN Classic.
And yet, Dish is content to engage in a bit of brinksmanship this month in a $150 million lawsuit, accusing ESPN of violating its last deal by allegedly giving other distributors like Time Warner Cable and Verizon more favorable treatment on subscriber rates, allegedly giving other distributors like Comcast more favorable treatment on packaging rights, and by allegedly allowing distributors to stream ESPN online to customers.
By now, most cable and satellite customers are familiar with the pains of blackouts when cable and satellite distributors fail to reach agreements with TV networks on licensing terms. What might be less appreciated is the extent to which the deal-work is complicated by an interwoven TV industry.
STORY: Trial Begins in Dish Network's $150 Million Lawsuit Against ESPN
One of the more common aspects of contracts between distributors and networks is something called a MFN, or most favored nation, provision. For example, it means that when ESPN makes a deal with DirecTV for better terms than what ESPN first gave Dish, ESPN is then obligated to equal the playing field. In reality, though, the situation becomes very complicated as has become clear in the Dish-ESPN trial.
For example, thanks to the 2005 ESPN-Dish agreement, Dish was originally set to pay Disney about 47 cents per subscriber per month this year for ESPN Deportes. That's on top of the more than $5 per subscriber per month that Dish now pays for ESPN. Dish's attorney Barry Ostrager pointed out that ESPN gets the "highest license fee" any satellite or cable distributor pays for any network. And in an obvious play for a jury's pocket books, he added, "At least $5 of every bill is attributable to ESPN."
Under its original agreement, Dish was obligated to pay a 35-47 cent monthly subscriber fee for ESPN Deportes between 2007 and 2013 (the rate bumps up roughly 7 percent each year), but then in 2007, Time Warner Cable reached a deal for 8-18 cents for Deportes and Verizon got an even better deal at about 3 cents. (Spread across tens of millions of customers, the pennies add up.)
Thanks to Dish's MFN provisions, the satellite company was going to get a discount. The only questions, when and how?
To seed suspicion in the jury's minds that ESPN violated the spirit of the agreement, Ostrager asked a series of questions of Justin Connolly, a senior vp of national accounts at Disney Networks who spent nearly two-and-a-half days on a witness stand.
Dish's questioning essentially created this storyline: